Knowledge Source

Your freedom to create wealth...

You are here: Home / Archives for Property Investing

He wants you to be rich …and he's throwing money at you!

by

So I got an odd email the other day.

It said,

“Dearest trusted frond, I am writing to you because I need your urgent respond relating this mutually beneficial business. I must to deposit $1 trillion in your account…”

Yeah yeah yeah. I’ve heard it all before. Someone out there is just giving money away for nothing.

But then I read to the end. And what do you know, it was signed:

Ben Bernanke
US Federal Reserve

So I looked into it and guess what?

It turns out that this one is legit. I’ve never met this guy Ben, but right now, he is doing everything he can to make me a very rich man.

Remind me to buy him a beer one day.

[Read more…]

Bernanke backs the Aussie real estate investors …Huh?

by

Hey, I know you think I’m nuts for making such an outlandish statement. After all, if you don’t know who Ben Bernanke is, he’s the man behind the world’s largest money-printing press and he’s cranking it up like crazy!

It’s an out-there statement for sure… and you’re unlikely to read anything like this in the mainstream media. But there is nothing mainstream about me or the money that I make as an investor.

So here me out, let’s roll…

Central Banks the world over are being forced into the uncharted territory of money printing (Quantitative Easing.) Thankfully, we’re a still a long way from that, but you could be sure that Glenn Stevens has got a nervous eye on how much ammo he’s got left. If we did end up forced down America’s money printing road, what would it mean for property? I’d argue it’s win-win either way.
Like those odds?

Glenn “Let the Good Times Roll” Stevens over at the RBA let the party continue last week, leaving official rates at record lows. But is anyone else detecting a bit of a nervous twitch beneath that poker-face exterior of his?

Glenn knows he’s slowly being backed into a corner. And there isn’t much he can do about it.

The RBA’s quarterly Statement on Monetary Policy, released towards the end of last week is an uninspiring read. Essentially, the economy is on track, with modest growth this year and the economy starting to hit its strides again sometime in 2014.

But, of course, they have to say that, don’t they? If the economy wasn’t on track, then that would be an admission that they’ve got the current interest rate settings wrong. And they’re not going to do that now are they?

Personally I don’t know why we pay much attention to the RBA’s forecasts. Everything’s always “returning to trend”. The only guide it gives you is what their thinking about interest rates is.

And in that sense, the thing that really jumps out at you is just how many uncertainties there are in the outlook – or more specifically, the lengths the RBA went to point them out.

Here is my reading between the lines…

They’re giving themselves plenty of room to cut rates further if they want to. I’d say they’d be expecting their hand will be forced at least once or twice more this year (in the best case scenario!!)

Interestingly though, housing gets a big wrap this year. Quote:

“Improving conditions in the housing market are expected to continue to provide support to dwelling investment.”

I wonder on that basis if Glen will rush out and buy an investment property. Or would that be insider-trading?

Have you ever thought this… “Hey MR Economist what are you investing in right now?” just after they give you their pearls of wisdom.

I digress… Where was I? Oh yes…

So say Glenn pulls the trigger twice more this year, that would take official cash rates to 2.5 percent. Glenn would have a very nervous eye on his ammo clip. He’s starting to run out of ammo.

Central Banks can’t cut interest rates down past zero. Negative interest rates don’t make sense (effectively paying people to borrow from you.)

But this is exactly where the US is at right now. The Fed cut rates aggressively, but didn’t get the bounce in activity it needed. Interest rates fell to zero, and the Fed, under Ben Bernanke, had to get creative.

Enter stage left: The Money Printing Press… Quantitative Easing

Quantitative Easing refers to a range of creative policies that have one aim: pumping as much cash as possible into the system.

As it works right now, The Fed creates money ex nihilo (the term you want to use when you want to say “out of nothing” and still sound like you know what you’re doing) and then stuffs that into the financial sector by purchasing treasury bonds and mortgage backed securities off the banks.

Once they do this, the only direction for asset values to go is up… that’s what there stock market and the real estate market did… You don’t have spend 4 years at uni and get an economic degree to figure this out.

So Glenn will be watching the US experiment carefully and trying to learn what he can. A few little hic-cups on the global stage, and we could end up in exactly the same boat.

I’m still taking a bullish view on the economy over the medium term. There’s evidence that the wall of money is sparking things in the housing sector, which will give consumers more confidence. And government budgets here are paragon of fiscal prudence compared to the US.

But just for the fun of it, let’s imagine ourselves in the worst case scenario. What does it mean for the property sector?

Interestingly, it’s a win-win scenario for property.

And this is because central banks have a fixation with property. They know just how important it is to the economy. It is central to household wealth, and therefore central to consumer spending.

And so we saw with QEIII, the Fed announced that on top of Treasury Bills, it was going to pump money into Mortgage Backed Securities. This was a direct attack on the housing market. According to Big Ben Bernanke:

“Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing.”

So then, there’s two possible outcomes. Either QE works.

Or it doesn’t.

If it works, mortgage interest rates are driven as low as they can go, and banks encouraged by the booming markets, become eager lenders. This will feed directly into property sales and prices.

Of course a cooling economy will be having a cooling effect on the market as well. But where else are you going to put your money? The government won’t be directly intervening in the stock market to puff up shares…

But in this scenario, QE works, and the property market leads the economy to recovery.

In the alternative scenario, QE does what’s it’s doing now in the US – not much. The economy keeps dragging along the ground, and ultimately, all this money printing translates into inflation. Investors start rushing towards assets that are “real” and give them some way to preserve purchasing power.

Even in the short term, property becomes a hedge against inflation.

But in either case, those of us who have a stake in property before the economy topples into a liquidity trap, get a good shot in the arm.

One other thing that I want to add is this: All the money-printing is sure to keep the America dollar weak and the Aussie dollar strong… So the “home run” play is this… Invest in USA real estate assets today.

Firstly, by doing this you get an amazing currency advantage right now as well as the opportunity to get a the double whammy of profits as growth slowly picks up over there.

Effectively, if you buy today and the Aussie dollar returns to 85c you would have made a 20% capital gain, even if the property has not moved a cent over there.

Add to that a 10-20% capital growth of the real estate, then the compound effect of all this can return a 50% gain overall… All this could happen in the next 12-24 months.
But wait, there’s more… You get great holding cashflow of any where between 10 to 15%… How good is that?

Do you now see why I made the crazy statement, “Bernanke backs Aussie real estate investors…”

Not so crazy now, is it?

Look I’m no fool, granted, these are uncertain economic times, but even amidst changing economic paradigms, property is as safe a bet as it’s always been right now.

Stay invested and start adding to your real estate portfolio… Today.

China farts and Australia craps its daks!

by

Hey, you and me need to discuss this. Your wealth and your children’s wealth depends on it whether we like or not.

Have you seen the movie, Looper?

It’s a movie about time travel 50 years from now. One of the main characters travels back from the future to tell his younger self to learn Chinese, it’s the language of the future.

Whilst I reckon it would be handy, I’m not doing it. But I am watching closely as to what is going on in the Far East (or North from our perspective), so lets move on…

Remember this…. ‘America sneezes and Australia catches a cold’?

Now it’s more like, ‘China farts and Australia craps its daks!’

That’s exactly what happened last year. It looked for a while like China’s growth might fall below 7 percent. That’s not a bad rate of growth. But if you’re trying to pull a billion people out of poverty within a generation, it’s not enough.

And it’s not enough to support China’s monstrous demand for commodities. The World Bank estimates that China currently consumes 45 percent of all metals produced globally.

So if one country is consuming almost half of the global metals market, even the slightest tremor is going to send shockwaves across the world.

And with the resources sector almost single-handedly propping up the Australian economy, it caused a bit of panic here. “The boom is over! The sky is falling!”

The RBA cut rates twice in quick succession, just to cover our assets.

In the end, China got back on track, and all the data so far this year are helping mining executives across the country sleep a little better.

So what happened?

Basically, China was trying to pull off an incredibly tricky acrobatic rebalancing act. They just didn’t quite nail the landing.

During the GFC, China cuts rates aggressively to try and insulate itself from the fall-out. In concert with sustained government spending, the rate cuts worked, and the Chinese economy crashed through the worst of it.

Trouble was, interest rates got stuck on a high-speed setting. And with interest rates at bargain basement levels, money started gushing towards the property sector. The Chinese leadership started to worry about an emerging blossoming bubble in real estate.

(Sound familiar? This is just what some people are worrying is happening right here right now in Australia. )

And so Beijing started looking for ways to take some heat out of the economy – to rebalance growth away from the property bubbles, exports and infrastructure investment, and towards private investment and consumption. Their strategy was to let the economy cool down a little. To bring growth back down to around 7 percent, from decade averages of over 8 percent.

The Chinese leadership went out and let it be known that they’d be happy with these more “balanced” rates of growth. In the words of Vice-Premier Li Keqiang:

“It is hard to maintain double-digit growth, but 7 percent will be enough to achieve an affluent society by 2020. We have benefited from reform in the past 30 years… We have to march on as there is no way back.”

The Chinese government still cut interest rates and banks’ reserve requirement ratio twice last year. But given what was playing out on the international stage, this was seen as conservative.

However, in the third quarter of last year, a string of soft data releases gave rise to the fear that China had undershot the mark, and was running dangerously close to stalling.

Hit the panic button.

But China was never going to let it happen.

Can you imagine how hard it must be administering a nation of 1.3 billion people? It makes what’s goes on in Canberra look like the squabbles of an outer-suburban council.

And can you imagine what an angry mob of 1.3 billion looks like. It’s a scary thought. There’s some very strong incentives to make sure the climb out of poverty continues. And quickly too.

But China has one big thing going for it – it’s stage of development.

China is around where Japan and Taiwan found themselves about 50 years ago. There’s has been an incredibly rapid pace of urbanisation over the past 20 years in China, but still 53 percent of the Chinese population live in rural areas.

And there are estimates that moving every 200 million farmers to urban areas boosts GDP by 0.8 percentage points. That gives the Chinese a powerful lever to lean on.

Similarly with investment. In a transition economy like China’s, it is easy to find productive areas to invest in – areas that expand productive capacity in the long run.

And so China knows that if it needs government spending to give GDP a boost, it can also fall back on infrastructure investment. And it can trust that, (9 times out of 10!) it’s not building some massive white elephant.

In this way, China’s stage of development affords Chinese officials with degrees of freedom not available to more advanced economies.

And you can be sure that the incoming Chinese leadership team will be doing everything it can to keep the party going.

In November 2012, the CCP completed a sweeping transfer of power with the new General Secretary, Xi Jinping and the new Prime Minister, Li Keqiang coming to the helm. While this transfer is not technically official until the annual session in March 2013 of China’s parliament, for all intents and purposes, this new leadership is in place.

And they will be keen to stamp their mark, and show the Chinese people that the economy is in good hands. Some forecasters are predicting that fixed-asset investments in infrastructure, including roads, bridges and housing, could surge to 20 percent this year, from 16 percent in 2012.

China will need to follow the classic development model at some point – moving away from a reliance on investment and exports, to a greater contribution from domestic consumption. But in the mean time, over the next ten years at least, China can rely on massive investment to drive things along.

A recent Fitch Ratings report shows investment (both public and private) reached a new record of 45.6 percent of GDP in 2011. No country in history has known anything like it – not even Japan, Taiwan or South Korea.

This obviously has very bullish implications for Australia and the Australian resources sector.

There will be ebbs and flows in demand for commodities, but there will be a fundamental level of unshakable demand.

The bottom line…

With the world awash with money thanks to the central banks and the China phenomenon, this year is a great year to build wealth and accumulate assets like crazy.

Well, that’s what I’m doing right now…

What about you?

Interest-Rate Shock Horror!

by

Sorry to be so dramatic…but I had to get your get your attention somehow.

The RBA left rates on hold this week. No surprises there. Glenn “Let the good times roll” Stevens seems happy to leave rates at record lows and to keep pumping gallons of cash into the economy.

But because there was no change, some esteemed economists think that the next move is up instead of down… Shock horror.

I’m all for a balanced view, so let’s look into it…

Paul Bloxham, Chief Boffin at HSBC is telling anyone who’ll listen that the next move in rates is up. Warrick McGibbin also reckons that rates should be going higher. In fact, he thinks the both of the rates cuts at the end of last year were a mistake.

Geez, who invited those guys?

The truth is, their logic is probably sound. But it’s never going to happen.

Let me tell you why.

But first, who is this Warrick McGibbin character? I don’t blame you if you never heard of him. He’s an academic economist after all. But for quite a few years he was sitting on the RBA board, helping chart the course of monetary policy. Now that he’s left, he’s a bit freer to wax lyrical on interest rates. This is what he told the AFR:
“Barring any disasters out of the US and Europe, the RBA’s easing cycle should be over…It will become increasingly important for the RBA to normalise what are extraordinarily stimulatory interest rates given the striking asset price inflation we are now seeing coupled with the economy’s nominal growth. I would not rule out two hikes before the year is out…”
Take it easy, tiger.

McGibbin might have a bullish view of the market, but he’s a notorious policy hawk. (Just a note for those of you new to Central Bank bird watching – a hawk is someone who’s happy to sacrifice a bit of growth to keep a tight lid on inflation. A dove, on the other hand, is happy to let inflation run a little if it means better growth outcomes.) McGibbin is a hawk and probably argued against every rate cut that happened on his watch.

The thing that jumps out at me from that quote is the bit about “striking asset price inflation”. What’s he talking about? Shares are doing ok these days but it’s nothing to write home about. It can only mean one thing.

Property.

McGibbin has been around long enough to know that rates this low, that these “extraordinarily stimulatory interest rates,” are going to have a big impact on property prices. The last time rates came down to these “emergency levels” property prices grew 20 percent in a year!

And it’s already started. Prices are already on the march. House price data across the board are showing that things started ramping up late last year. And it’s just the beginning.

But hang on a second, aren’t increasing property prices a good thing? Haven’t we been hanging on every data release through 2012, waiting to see when the recovery would finally kick off and we could finally crack that bottle of bubbly?

We have. A healthy property market and rising property prices are a good thing – especially for property investors like you and me.

But that’s not what’s got McGibbin worried. Nor anyone at the RBA.

To use the RBA’s term, what McGibbin and the hawks are worried about are “imbalances” in asset markets. But let’s call a spade a spade. Their worried about bubbles.

And it’s not the rising prices that make bubbles so scary. The danger is the way inexperienced punters can end up leveraging themselves into a corner. They take on more debt than they can handle, and sink it into poor investments. These poor investments do ok when the market is on the way up, but are the first to hit the floor when the music stops.

And what the hawks are arguing is that the current interest rate setting is driving people into the property market.

Well, of course they are. With mortgage rates at record lows, and pretty ordinary returns to be had anywhere else, property is the only game in town.

But is it a bubble?

Of course not. Prices are just picking themselves up off the floor in most of the capitals. Things are definitely on the up, but it’s been a slow couple of years.

So what McGibbin is really saying is that he’s worried that, at some point down the track, we might be stuck with a bubble.

I think it’s probably too early to tell either way. He might be right. And it might be making ‘Good Times Glenn’ over at the RBA a bit nervous too. And it might be, that if you had a magic crystal ball that could tell you such things, it would tell you that interest rates actually do need to go up this year to stop it happening.

But that still won’t change a thing. Interest rates are going nowhere
Why?

Because the RBA isn’t in the business of bursting bubbles.

The RBA, like most central banks these days, is an inflation-targeting central bank. That is, they have an agreement with the government. They said, you let us control the interest rates, and we’ll use them to keep inflation under control. We’ll leave everything else to you.

So the only excuse they’ve got for raising rates is if it looks like inflation might be getting out of hand.

And what’s inflation doing?

Nothing. It’s going nowhere. It’s right at the bottom of the RBA’s target band and going nowhere fast.

So if the RBA was worried about this “asset price inflation”, they’d have to make the argument that ….
1. There was a bubble,
2. That the bubble was about to burst, and…
3. When it bursts it’s going to take the economy down with it and drive inflation through the floor.

That’s a pretty big call to make.

And could you imagine just how much of it would hit the fan if Glenn came out and said, “Hey, we’re jacking up rates and adding 300 bucks to your mortgage. Why? Because we think your homes are worth too much.”

Forget it. He’d be torn to pieces. And once the dust settled, he’d be lucky to still have a job guiding tours around the currency museum.

Rates aren’t going anywhere.

It is true that current settings will have a big impact on house prices, and quickly too.

But until there’s solid evidence that inflation is on the move, it’s time to accumulate and get rich – or in your case, richer… Much, much, richer.

So right now you can slip under the radar and start picking up deals that yesterday (last year) had negative cashflow and today are positive… Make sense?

While Glen keeps busy “like a hawk” watching the inflation numbers, retail spending, unemployment, commodity prices, new start home figures, the Australian dollar, etc, etc…

(By the way all, of which determine if interest prices go up or not…)

…You can take advantage of the all this cheap money on offer and become rich before every one else wake ups.

Come on now, get busy, get to work, take action and make it happen…this year.

Warning: Wall of Money to Smash the Real Estate Market… Look Out!

by

Despite what the RBA did yesterday (which was nothing), there is already a tidal wave of money heading in the direction of Australian property. The bells are ringing and all the indicators are already pointing north, but you aint seen nothing yet…

I don’t think most people really understand just what’s in store for Australian property this year. Sure, every analyst worth their salt is pointing to a strong year, and all the data are already telling us that house prices are on the move. But that’s not even the half of it.

I think what everyone is underestimating is just how much fire is going to come off the current setting of interest rates. And forget what the RBA does today – that won’t change what’s already in store for us.

Look at where rates currently are. The official cash-rate is just 3.0 percent. That’s a record low. You can get amazing deals out of the banks right now, especially if you push them.

But the really important thing to remember is just how quickly rates have come down. The RBA has knocked 175 basis points off the cash rate in a little over a year. At that rate, you’d think they were selling Persian Rugs or something.

And so this stimulus is taking its time to work it’s way into the system. The housing market has turned the corner and all the data are pointing up, but this is barely a taste of things to come.

We’ve got houses on one side of a see-saw, and interest rates, like some oversized King Kong about to come smashing down on the other. Once they land, watch house values go stratospheric.

…but be warned not all areas will go up…some will go up faster than others…much, much faster. Your job if you are willing to accept it, is put your ear to the ground and track the stampede of money and buyer.

One thing is for sure, by taking action now you will be ahead of the pack.

House Prices Already on the March

As I said, we’re already seen the first signs of what’s in store. House prices are clearly on the move, and gathering steam.

One of the tricky things about the property game is that every man and his dog’s got a house price index. When everyone’s pushing a different view, it can be tricky to get a clear reading on what’s actually going on.

But the interesting thing about what’s going on right now is that the housing data have joined hands in a sweet, sweet harmony, and for the first time in a while are painting a consistent picture: house prices are up….that means some easy money is on offer.

Let’s start with Australian Property Monitors. They’re reporting that national house prices grew 2.1 percent in 2012, accelerating towards the end of the year, and growing a very impressive 1.9 percent in the December quarter. To put that in perspective, that’s a annualised growth rate of a little less than 8 percent a year. That’s a decent clip, and as I said, we’re just getting started.

Now just to drive this home, if you put in a 10 % deposit an you get an 8% return – that’s a huge 75% cash-on-cash return…try getting that in another form of investing in 2013…

And what’s more, the national figures hide some very strong performances by Perth, which grew 6.1 percent in the 2012, and Sydney, which was up 3.4 percent. Both cities have a full head of steam behind them. Only Melbourne seems confused about which direction it should be running.

Looking at some of the other datasets, which use different methodologies, the Residex measure was up 0.53 percent in the month of December, which is an annualised growth rate of 6.5 percent a year.

Residex Chief Economist Jon Edwards (nerdy looking guy, but super sharp) said it’s the best performance in 18 months.

To top it off, the RP Data-Rismark measure was up 1.1 percent in January. That’s an annualised clip of 14 percent a year. Any investor would be happy with that.

Hey, what I have quoted above are “averages.” If you add a little real estate education, you could get 300% better return that the averages.

There is also a solid recovery underway in new home sales. It seemed that investors and existing homes were supporting the market through most of 2012. However, the Housing Industry Association Land Sales Report showed that residential land values increased 3.8 percent in the year to the September quarter. Not bad at all. And I think we’ll see an even better result once the December quarter data come in.

The HIA measure of new home sales also bounced in December. They were up 6.2 percent in the month, and 3.3 percent in the quarter. This shows that the housing market is building a solid and broad base from which to launch its current run.

Aint Seen Nothing Yet…

The current recovery is exciting, and some of these numbers will get investors’ mouths watering, but it’s just the thin end of the wedge.

What we’re seeing is the vanguard of a price surge brought on by the slashing of interest rates over the past year or so. And we’re just getting started.

The RBA started slashing rates in November 2011, and has since knocked 175 basis points off the official cash rate. As you’d expect this is starting to have a big impact on property demand, and therefore prices.

The only thing that’s surprising is that it’s taken so long to get here. If you take the last three rate cutting cycles (1996, 2001, 2008) as a guide, you’d normally expect house prices to be up between 15 and 20 percent this far into a rate cutting run.

But we’re only just starting to see the stimulus come through now.

Why’s that?

I think it’s got everything to do with confidence.

The GFC really rattled people. It gave us a sense of how vulnerable we were to the dramas playing out in the rest of the world. And with our eyes fixed overseas, we saw Europe take itself to the brink of disintegration, and America almost drove itself broke.

At the moment, it’s all very quiet on the western fronts…

But those troubles seem to be behind us now, and we’re slowly seeing a pick-up in Aussie confidence.

And that means house-prices have some catch up to do. The rough maths suggests that they’re at least 15 percent behind the curve.

My bet is they’re going to make this ground up very quickly, and from there, just keep heading skywards.

Play your cards right and this tidal wave of money will really float your bank account much, much higher this year.

So the plan is really simple, in every cycle there is a time when there is a lot of easy money on the table…this is one of those times.

Time to accumulate and ride the wave of money coming out of hibernation. It already hit the stock market over the last 3 months…and look what has happened there, market is up about 12% …now it will move to real estate…

Signed with Success,

Jon Giaan
Knowledge Source

P.S. Be warned, not all areas will go up. It’s dumb and foolish to think that. I’ve got my eyes on 3 or 4 areas that I am running the numbers on at the moment… I’ll fill you in shortly.

Why I love the first Tuesday of the month…

by

There’s a new game in town… it happens once a month on a Tuesday.

It’s called… What will the RBA do next?

Yep, today is Tuesday and the game is live.

90% of economists reckon rates will be cut by 0.25%.

In fact, they think it’s a done deal and the market has factored it in.

What do I think?

If 90% of the economists think it’s going to happen, who am I to disagree?

But… And here’s the big “BUT”.

It might mean absolutely nothing to you if you’re an investor or a home owner with mortgage.

Why?

It doesn’t matter what the RBA does, it comes down to what the big four banks will do.

Those buggers probably won’t pass it on. Expect a bit of “bank bashing” to hit the front pages.

What it will mean is that the cash-rate will hit the GFC lows of 3% (Although mere mortals cannot borrow at that rate).

So, is it really THAT bad out there… so bad that we’re back to the GFC interest rate lows?

I’ll let you ponder that.

But here’s who will be affected for sure… Anyone who has money in the bank and living off the interest is going to hate today and every Tuesday that the RBA big-boys get together.

As interest rates come down and savings of retirees go down with it, I think what we’ll see is people starting to say to themselves, “I need to look for better places to invest.”

Hence, they’ll be looking at the stock market and real estate.

You know what I’ll be doing… Real estate is my favourite vehicle by a long shot.

…and low interest rates are perfect for a nut-case like me who loves real estate.

Nothing wrong with investing in shares, it’s just that I can’t play the games I want to play with the share market. But with real estate, it’s open slather.

One other thing for sure is that all of the bad news about why the RBA is lowering rates will be on the front page of the major newspapers across the country.

…the good news?

Page 24, left-hand side, less chance of people seeing it.

What you need to do is protect yourself from all of the silly noise out there and start making your own decision about where you want to be in 2013.

Start planning now. I don’t have to tell you what happened last time interest rates were this low.

Signed with Success,

Jon Giaan
Knowledge Source

P.S. I think great wealth will be made in the next 24 months and if you want to benefit, now is a great time to take investing really seriously and make it one of your top-3 priorities… Maybe even #1 for a while.

 

TRUE STORY: How I returned a huge 907% in just 7 years…

by

This got me thinking the other day…

I was watching some business show and it reported on the average return of superannuation funds over the last 15 years.

…4.9% per annum.

You shocked?

I am a little bit. I know there has been some bad years of late, but ten of the fifteen years were pretty good.

It begs a question as to what exactly did they invest in?

That’s an easy one.

The stock market.

So I thought to myself, what did I invest in 15 years ago that might be able to contrast against the pathetic returns of Super. Here’s what I dug up.

I bought a property in 1997 in Brunswick, Melbourne for $104,000. I had to put down around $27,000 to cover the deposit, stamp duties and costs. The interest rate back then was around 6%.

…it was negatively geared by about $150 a month.

I sold that property in 2004 (don’t ask – a long story) for $349,000.

OK, so let’s calculate a return.

I invested $27,000 in 1997 and returned $245,000 in 2004. That’s a total return of 907% in 7 years. An impressive figure, yes.

But here’s another way of looking at it that’s a bit more real.

The average annual return would be a massive 38% compounded. I won’t explain how compounding works, but it’s important.

(Yes, that’s right. I triple-checked the numbers).

Now of course, that would not be my net, because I had a little bit of negative gearing going on and I had to pay some capital gains tax when I sold.

But whichever way you look at it, it completely “crapped” on the the Super investment in half the time.

You’re probably saying, “Yes, but if you invested directly in to shares, you would have averaged 11% or better.”

Yeah, sure I agree. But it would not come close to these types of figures.

Now, there are a lot of reasons why…

The biggest one of all is the leverage you can get in real estate on a cash on cash basis. Nothing beats it.

Even when you take in my net cash-flow loss per month, (which incidentally went positive about 3 years into the deal) and the capital gains tax paid, this deal averaged around 33% return per annum compounded on my cash invested.

33% per annum compounded for 7 years.

Again, nothing comes close to this type of investment.

Here’s the best part of it. For that 7 year duration, I did very little, hardly lifted a finger, no renos, no hard work and it doesn’t get any easier than that really.

Incidentally, if you’re curious, that property is probably worth about $550,000 today… Ouch! It hurts when I say that.

So why am I telling you all this?

Because 1997 was a lot like 2012.

Here’s what I’m talking about…

– The interest rates are about the same.
– The sentiment around real estate is the same.
– We’ve come off a serious global crisis… back then it was a recession.
– And rents are starting to match mortgage payments in a lot of places (this happened in ’97)

…look, nobody knows what’s going to happen in the future. But I know one thing for sure. That I’d rather take my chances with real estate than anything else out there. You can’t sit on the fence. I mean, how many real estate cycles do you want to miss?

Imagine looking back in 7 years (again) and saying, “Damn, I knew I should have got involved when interest rates were 5-6%.”

You need to seriously sit down and start thinking how you can generate a 900% return on your investment in the next 7 years and then work out how to do everything within your powers to buy as much real estate as possible in the next 2-3 years.

It’s happening now. More and more investment style properties are coming on the market at a virtual neutral cash-flow position. Some even slightly positive. And these properties are in hot growth areas.

Time to get serious. Time to get to work.

Signed with Success,

Jon Giaan
Knowledge Source

P.S. Hey, you might have a similar story. Let us know! Let’s start telling folks that they’re crazy to invest in anything else. If you truly understand cash on cash returns, why would you? Your thoughts, please?

P.P.S. The only other place you can get these crazy returns is running a business. But unfortunately it’s hard work, most people don’t know what they’re doing, and there are certainly no guarantees.

 

Interest Rates: Party like it's 1999…

by

OK, let me give you a different spin on the whole interest rate thing-a-majig.

To keep it in simple terms, when the RBA puts up interest rates they think things are going great, awesome, fantastic.

…when they lower them, they think times are tough, the outlook is bleak and difficult.

Most mortgage holders think the opposite when interest rates go down.

They’re wrapped, ecstatic and over the moon.

But here’s what I think… It’s time to party like it’s 1999.

Take a look at this chart:

Hmmm… Some interesting observations.

Back in 1996, we were paying interest rates of 11% …ish.

The cash rate was about 6.75%.

The banks were killing it and making a fortune.

Then we see the rates come crashing down from 11% to 7% within 12 months.

The cash rate was 5%. (Jeez, the banks play funny games with us, don’t they?)

But anyway, it’s not about them…

Between 1997 and 1999, rates stayed stable.

OK, here’s why it’s relevant. The period between 1996 through to 1999 was the best time to buy real estate in that particular cycle.

I personally bought a single-front in Brunswick, Victoria for $104,000 during that period. Within 3 years it was worth $250,000.

So, if you were smart enough to be able to pick a bottom and then start investing like crazy, it would have had to have been 1999… Hence my silly little subject line.

Party like it’s 1999…

In fact, it should be party like it’s 1996 all over again and get a 3-year head start on the rest of the market (if you follow my philosophy and thinking).

So let’s have a look now…

The interest-rate cycle high I see as late 2007 at around 9%. Same deal, interest rates came crashing down from 9% to under 6% around the 2009 period (similar to 1996-97).

Because this is fairly recent, we all remember what happened when interest rates hit that 6% low. Lots of folks piled back into real estate, and if you bought well in the right states, you would have made 20-30% gains in 2 years.

…but then the RBA did something really weird. In the eye of the GFC storm, they started lifting rates.

You can thank the 2-speed economy theory for that.

Now that their view is that the mining boom has ended, they can resume their normal programming… and that’s what we’ve started to see with their recent rate-cut.

I think we’ll go back to the previous low (look at the green line) of just under 6% within a 3-6 month period… and then we’re going to flat-line.

Here’s my view… The period between 2013 and 2016 will be a great window of opportunity to create wealth in real estate. But it won’t just be real estate. There will be a lot of other strategic opportunities because of this cycle interest rate low.

Why?

Pretty simple. You have to ask yourself this question… When interest rates are low (think cost of money), then who benefits from that type of environment?

…in fact write that up on a Post-It note and slap it onto your desktop so you can see it every day.

Let me start the ball rolling…

– Real Estate
– Anyone who lends money (brokers, banks, etc)
– Stockmarket
– Anyone who sells or supplies manufacturing, infrastructure equipment
– Money advisors (be careful with this one)
– I hate to say it, but banks as well.

OK, I hope that makes sense to you. I could go on and on, but I don’t want to confuse you with too many ideas here.

The main premise is that I’m getting this feeling that it’s 1996 all over again. Back then I was just starting to get my act together and didn’t have a lot of money.

This time, I’m cashed up and believe that I can double my wealth in the next 3 years and then disappear to a remote Greek island, drinking Ouzo, eating the catch of the day and cruising around the Mediterranean.

Come join me.

Signed with Success,

Jon Giaan
Knowledge Source

P.S. Hey, leave a comment., I’m sure I’ll get a lot of arm chair economists telling me all the reasons I’m crazy, history doesn’t repeat, times are different now, what about this and what about that?

P.P.S. Here’s that question again… Who stands to benefit if money is cheap? Did you put it on a Post-It note? I did. Here’s photo evidence.

P.P.P.S. 2013-2016… It’s time for you to achieve your greatness. Or as the AFL coined it, This is Greatness. It certainly will be if you get off your toosh, and to use another legendary AFL saying from John Kennedy… DO SOMETHING!

VIDEO: A real estate deal that defies logic…

by

You seriously need to watch this.

I rant and rave about how you could be one deal away from replacing your income.

So here’s proof of how a Melbourne lady did this.

You could do a lot of things today.

Read a newspaper for 10 minutes…

Spend 10 minutes on Facebook…

Have a quick chat with a colleague for 10 minutes…

All of the above are nice, but hardly productive, don’t you think?

Or, you can spend the 10 minutes and discover how an investor was able to create $94,581 of passive income with just one deal.

Hey! That’s $1,800 per week.

Now, you’re probably thinking she spent well over $1 million to achieve that.

Nup, total investment was just over $500k.

Look, what she did wasn’t easy, but I have to tell you that it wasn’t that hard either.

Let her explain the whole story to you.

Signed with Success,

Jon Giaan
Knowledge Source

P.S. I love stories like this and I always get a tone of emails back telling me that it can’t be done for whatever reason. If you think it can’t be done, you’re right. On the flip side, if you believe that it can be done, you’re right… Time to choose.

P.P.S. This wasn’t done 10 years ago. It was done just a couple of months ago. From start to finish, the process took 6 months.

P.P.P.S. …and what do you read in the daily newspapers? BS about how tough it is in the real estate market. Stop reading and start watching.

Here's proof of how I predict real estate cycles…

by

This is it!

Sounds dramatic, doesn’t it?

…but this is my way of predicting when the time is right to accumulate a truck load of real estate assets.

It’s so simple, you’ll kick yourself for not knowing this and keeping a tab on it.

Look at this chart…

What do you see?

Remember when we were ranting and raving in 2009 that it was a sensational time to buy real estate, despite what everyone else was saying?

Hmmm… Look where interest rates were back then.

Below 6%.

It was a no brainer and we made a killing.

Did you?

Look at where interest rates are heading now, possibly back to around those levels.

Here’s a principle that you should stick by.

Whenever interest rates are around the 6% mark, it’s always a great time to accumulate real estate.

Now, look back at the chart.

I got started investing around 1995-1996. I had no idea back then how powerful this information was, I simply got lucky.

Back then, interest rates were around 11% and came crashing down to the 6% area.

Yes, the real estate market came back after a significant boom from 1987 – 1991.

The market went sideways from 1991 – 1996, without much happening with regards to growth… a great time to accumulate.

The sentiment for real estate was very negative.

But through that period of 1991-1996, rents were increasing as prices flat-lined. Then interest rates hit a cycle low around 1996 and real estate prices took off.

…They almost doubled in the next 4 years!

Interest rates went up to around 8%, slowing the market down. The real estate market took a breather, paused for a year or so and then continued it upwards movement in 2002 when rates again were at around 6%.

We had another mini-boom cycle from 2002 – early 2005 and things slowed down again. Can you see the pattern here?

Look, I know I’m making it really simple here, and sure, there are a few other factors to consider… But when interest rates are around the 6% mark, it’s good news for real estate investors.

From what I see at the moment, the current period reminds me of more like 1995-1996 period. If I had my time again, I would have bought a lot more property during that period.

I’m not making that mistake twice.

Right now, it’s a great window of opportunity for future profits. There’s a time to accumulate real estate and now is the time.

Sure, I’ve said this in the past, you can make money regardless of the market if you’re educated, proactive and smart.

…but, there are times when  you can get a double-whammy for your efforts and everything is easier.

Interestingly, I was listening to Charles Tarbey, the Century 21 real estate director and he said that in certain markets, an interesting and unique phenomena had been reached.

That is where rents had reached the point of repayments on the average home. Do you know what I’m talking about?

Those renting will start looking at buying because their monthly rental payments equal what the mortgage repayments would be.

All this due to interest rates coming back significantly and rents increasing on average 15-20% over the last 3 years.

I hope all this information makes sense to you.

You’ll be looking back at this period in 4 years time and if you don’t take advantage of it, you’ll be kicking yourself.

Do whatever you have to do right now to put yourself in a position to profit from a potential significant shift in real estate prices.

Accumulate like crazy… NOW is YOUR time.

Signed with Success,

Jon Giaan

Knowledge Source

P.S. I got lucky in 1995-96. But I kind of made my own luck, because around that time I was educating myself and wanted to take my own destiny in my own hands. You make your own luck.